INCOME TAX ACT, 1961

Section 153A

Search and seizure - Assessment under section 153A - Disallowance under section 14A - Validity of

A search and seizure action under section 132 and certain documents belonging to the assessee company were also found and seized. Subsequently, a statutory notice under section 153C was issued to assessee. During the course of assessment proceedings, AO observed that assessee had claimed dividend income as exempt income. Assessee was issued show cause notice and was required to explain as to why a disallowance under section 14A read with Rule 8D of the Rules not be made in respect of interest income. Subsequently, a total disallowance was computed and after giving deduction, which was disallowed by assessee itself, the balance amount was added back to income of the assessee. Held: It was an admitted fact that on the date of the search, assessment was not pending and that nothing incriminating was found during the course of the search which could be related to the disallowance made by AO under section 14A. The Assessment Order did not make any reference to any incriminating material found and seized during the course of search which could establish some kind of nexus with the 14A disallowance. Since no incriminating material was unearthed by AO during the course of search operation under section 132, therefore no addition could be made during the relevant assessment year under section 153A.

Followed:CIT (Central)-III v. Kabul Chawla (2015) 380 ITR 573 (Del.) : 2015 TaxPub(DT) 3486 (Del-HC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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